Pricing Network Use

Cost, value and intangibles: Internet Providers Try to Charge More as Costs Fall (pdf)

The debate over the price of Internet use is far from over. Critics say cable and phone companies are already charging far more than Internet providers in other countries. Some also wonder whether the new price plans are meant to prevent online video sites from cutting into the lucrative revenue from cable TV service.

Cable executives say the issue is not competition but cost. People who watch or download a lot of movies and TV shows use hundreds of times more Internet capacity than those who simply read e-mail and browse the Web. It is only fair, they argue, that heavy users should pay more.

[…] Still, critics say the image of Internet providers as restaurants about to go broke serving an endless line of gluttons simply does not match the financial or technological realities of the industry.

They point out that providers’ profit margins are stable, and that investment in network equipment is generally falling.

A Tale of MySpace and Music

MySpace hopes to turn free songs into needed cash

The setup gives MySpace and the music industry a share of song-download sales from Amazon, and it could bring new revenue from ads. Next, Holt plans to make MySpace into a seller of concert tickets and band merchandise, while better targeting songs, ring tones, artists and ads at the people who will probably be interested in them.

Through these efforts, MySpace’s vaunted music-promoting power could help patch the leaks that have sprung up in the recording business. Even with sales of song downloads on the rise, the music industry is not recouping the revenue lost from falling sales of compact discs.

MySpace’s objective will be to find “half a dozen new revenue streams” that will help recording labels move away from just selling song downloads and CDs, said Rio Caraeff, executive vice president of Universal Music Group’s digital strategy unit. “We’d rather have 10 healthy revenue streams than one big revenue stream prone to disruption.”

Somebody’s Looking For A Fight

Maureen Dowd finished up with Hilary Clinton; now she’s on to Google, with this trenchant presentation that misses the point while disseminating all sorts of hogwash: Dinosaur at the Gate (pdf)

Google is in a battle royal over whether it has the right to profit so profligately from newspaper content at a time when journalism is in such jeopardy.

Robert Thomson, the top editor of The Wall Street Journal, denounced Web sites like Google as “tapeworms.” His boss, Rupert Murdoch, said that big newspapers do not have to let Google “steal our copyrights.” The A.P. has threatened to take legal action against Google and others that use the work of news organizations without obtaining permission and sharing a “fair” portion of revenue. But what’s fair will be hard to prove.

“So,” I ask Schmidt in a small conference room that, disturbingly, has an ejector seat. “Friend or foe?”

[…] Why can’t Google, which likes to see itself as a “Don’t Be Evil” benevolent force in society, just write us a big check for using our stories, so we can keep checks and balances alive and continue to provide the search engine with our stories? After all, Schmidt acknowledges that a lot of what’s on the Internet is “a sewer.” He told me people don’t come to Google for “crap,” but for what’s “useful.”

He declines to pony up money, noting that newspapers could opt out of giving their content to Google free and adding, “We actually like making our own money for obviously good capitalist reasons.”

He says: “The best way to get out of this is to invent a new product. That’s the way Google thinks. Incumbents very seldom invent the future.”

Yes, the publishing industry is in trouble. Yes, the Internet is having an effect. Yes, there are all sorts of peculiar complexities that arise during the cycles of creative destruction that mark a capitalist economy. But, as I have learned from folks within this industry, it’s not like the incumbents didn’t get any warning, and it’s not like they couldn’t have acted on what they saw happening around them. And there’s plenty of economic history that backs up the fact that this is what it means to live in a competitive, innovative economy — you have to work to stay ahead, and it just doesn’t look like the people running many of these companies wanted to work that hard.

Moreover, it’s not at all obvious that Maureen’s proposed solution, to tax those on the ascendant to sustain those on the downslope, really makes any sense. And we certainly know that there are all sorts of dangers associated with simply legislating rights that never before existed.

The closing bit is good, though — at least maybe Maureen will get to work:

When I ask [Google CEO Eric Schmidt] if human editorial judgment still matters, he tries to reassure me: “We learned in working with newspapers that this balance between the newspaper writers and their editors is more subtle than we thought. It’s not reproducible by computers very easily.”

I feel better for a minute, until I realize that the only reason he knew that I wasn’t so easily replaceable is that Google had been looking into how to replace me.

BookSense, Contracts and Enclosure

Google Claims Orphan Books, Raising Alarm in Academia (pdf)

Now millions of orphan books may get a new legal guardian. Google has been scanning the pages of those books and others as part of its plan to bring a digital library and bookstore, unprecedented in scope, to computer screens across the United States.

But a growing chorus is complaining that a far-reaching settlement of a suit brought against Google by publishers and authors is about to grant the company too much power over orphan works.

These critics say the settlement, which is subject to court approval, will give Google virtually exclusive rights to publish the books online and to profit from them. Some academics and public interest groups plan to file legal briefs objecting to this and other parts of the settlement in coming weeks, before a review by a federal judge in June.

“Patent Exhaustion”

It appears that Static Control has scored some more points in its dispute with Lexmark, this time also possibly deflating some of the notions of “clickwrap” as well. See 5:02-517 & 5:04-84, Static Control v. Lexmark, from US District Court, Eastern District of Kentucky; March 31, 2009; Judge Gregory F. Van Tatenhove.

In more general terms, “The authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use ofthe article.” Id. According to the Supreme Court, then, the LGE-Intel agreement did not impose conditions on the sale of the patented products, but rather attempted to impose conditions on the use ofthose products after a fully authorized sale.

In its Motion to Reconsider, Static Control asserts that “[t]he patent exhaustion doctrine articulated in Quanta invalidates Lexmark’s effort to create patent-based use restriction through its postsale Prebate terms, as well as Lexmark’s attempt to enforce the Prebate terms under patent law against Static Control.” [R. 1422-2 at 6.] This Court Agrees. Like LGE, Lexmark does not impose any restrictions on the sale of its patented products-toner cartridges. Additionally, like LGE, Lexmark attempts to reserve patent rights in its products through post-sale restrictions on use imposed on its customers. This is what Quanta says Lexmark cannot do. As Static Control puts it, “LGE could not preserve its patent rights through a postsale restriction on an authorized sale, even when the subsequent purchaser was on notice of the asserted patent rights.” Now, neither can Lexmark.

[…] In sum, after Quanta this Court is compelled to reconsider and reverse a decision that at the time was consistent with the Federal Circuit’s articulation of the law. Because Lexmark’s patent rights in its toner cartridges were exhausted by the authorized, unconditional sales of the cartridges to end users, Lexmark’s attempt to impose single-use restrictions on the cartridges fails. The Prebate Program is invalid under patent law.

For a little background, see By Tearing Open That Cardboard Box, Are You Also Signing on the Dotted Line? (pdf). The text of the Lexmark “clickwrap” can be found in a footnote in the cited decision:


Please read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. This patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for remanufacturing and recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.

Also from the decision, a primer on “patent exhaustion,” which is essentially an application of the notions of “first sale” in conjunction with the concept of patents:

In sum, the Supreme Court’s overview of its history of statements on the law of patent exhaustion [in Quanta] reveals that the Court has consistently held that patent holders may not invoke patent law to enforce restrictions on the post-sale use of their patented products. After the first authorized sale to a purchaser who buys for use in the ordinary pursuits of life, a patent holder’s patent rights have been exhausted.

Quanta itself reaffirms the Supreme Court’s articulation of the doctrine of patent exhaustion as set forth in the cases discussed in the previous section. It represents a change in the law, however, because the Court reasserted a broad understanding of patent exhaustion in the face of Federal Circuit case law that had narrowed the scope of the doctrine. That Federal Circuit case law had been followed as binding precedent by the district courts, including this one.

Or, in other words, this decision says that the constraints that have been creeping in to limit “patent exhaustion” are probably not going to survive, in this Court’s opinion.

We’ll see, of course


While I am confident that a breach of contract has been committed, it’s not clear yet that it’s even a crime. And “piracy?” Amazing how we manipulate language these days: Piracy Puts Film Online a Month Before Theater Opening (pdf)

The troubling leak — which some people initially dismissed as an April Fool’s Day prank — occurred at a time when media companies are working harder than ever to curtail digital piracy of content. Illicit recordings of films usually appear on the Internet shortly after their theater debuts, but leaks before the premiere dates are rare. Hollywood studios spend millions of dollars to track every step of the film production process to avoid such potentially costly leaks.